Fitch Ratings has maintained its negative sector outlook on the London insurance market, citing continued pressure on profitability as catastrophe events hit underwriting performance and expense ratios remain high.
The global financial services ratings agency highlights the negative impact of catastrophe losses and low investment returns on the results of London market insurers in 2018, a year which saw the Lloyd’s of London market record an improved (year-on-year), but still unprofitable combined ratio of 105%.
Above average once again, insured losses from catastrophe events in 2018 hit the profits of London market insurers and reinsurers, although the industry total was far lower than the level seen in 2017.
Following the second year in a row of above-average cat losses, the re/insurance industry was hopeful of meaningful rate rises at the January 2019 renewals, and, while increases were evident, rate improvements were less than the market had hoped for.
As a result of moderate rate increases and the impacts of catastrophe events in 2018, London market players remain under pressure to generate profits in a very competitive and challenging operating landscape. Add to this the reduced investment return in 2018 and high expense ratios for the majority of London players, and it’s not too surprising Fitch has maintained its negative sector outlook.
Fitch notes a continuation of “stubbornly high” expense ratios, with most London insurers reporting an expense ratio of above 40%, despite ongoing strategic initiatives across the Lloyd’s and broader London market to improve efficiency.
The cost of doing business in London remains high, warns Fitch, adding that it expects the benefits from the initiatives that are underway to improve efficiency in the London market to take some time to materialise and have a meaningful impact on expense ratios.
Further rate improvements are expected at the upcoming mid-year renewals, when much of the loss-affected U.S. business is up for renewal. This, combined with the ongoing efforts across the London marketplace to lower expenses suggests that for now at least, the London market appears to be heading in the right direction.